Hearth & HomeAugust 2017

Hot Tubs Are Hot Again

By Bil Kennedy

The 2012 holiday season wasn’t a particularly jovial time for the hot tub industry. After the end of the Great Recession some three years earlier, the category had yet to rebound. In fact, it did just the opposite: Since 2009, the average annual rate of growth was a negative 0.7%. This, of course, after the industry had already experienced a tumultuous 53% drop during the economic downturn from 2006-2009.

Yet elsewhere in the economy, things were looking better by 2013. Gross Domestic Product since the end of the Recession was up 7.2%, consumer confidence jumped 58.6%, and housing starts – long a harbinger for the pool and spa industry – were up 53.2%.

So why not spas?

It’s hard to say exactly why spa sales didn’t follow the broader economy. Certainly other big-ticket discretionary purchases were showing signs of improvement: Boats and RVs, to name two comparable categories, were both experiencing significant double-digit growth, according to their respective trade associations. Clearly, consumers were spending again – just not on new spas.

Whatever the case, the drought was about to end. In 2013, spa sales rose to 177,000 from 171,000 the year before, a 3.5% climb. This was followed in 2014 by a 4.0% increase over 2013. That’s not exactly hitting them out of the park, but at least it was two statistically meaningful periods of growth.

Then, in 2015, sales rose back over the 200,000 mark for the first time since 2008, to 205,000, an 11.4% jump. That was still not where the industry thought it should be, but heading in the right direction.

For 2016, Pkdata estimates that some 227,000 new hot tubs were sold, a 10.7% increase from the year before.

Hot Tub Unit Sales2007 - 2016

Percent Change in Hot Tub Unit Sales2007 - 2016

Note: The data refer to hot tubs produced in the U.S. for domestic consumption and therefore do not account for exports or imports.

Why have industry fortunes changed, and why now (instead of seven years ago)?

In our discussions with spa dealers across the country over the past two months we have developed several theories. First, spa technology has continued to improve. This includes both the manufacturing process as well as the mechanisms for treating the spa water. In other words, water care continues to be easier and more effective.

Second, the new generation of hot tubs features many attractive designs in cabinet textures and colors. Today’s hot tub shoppers have so much more from which to select.

But perhaps the greatest impact in sales is coming from the dealers themselves. Many of the successful ones are taking a more tactical approach to marketing. Perhaps most significant is the practice of promoting off-site – bringing spas to local events such as home shows, tent sales, and even county fairs.

Our research has repeatedly shown that part of the problem with flagging spa sales is lack of awareness. It has simply never occurred to many people to even consider buying a hot tub. Think about it: When you go to a home center to buy paint, what do you pass when you’re there? Appliances. So, you know right where to go when you need a new refrigerator. You know where to buy your next car because you probably have a pretty good idea where dealerships are located. The same is true with your next laptop computer.

But when was the last time you saw a hot tub on display anywhere? At the mall? At the same home center where you saw the appliances? Chances are that you are unlikely to see hot tubs anywhere except at an out-of-the-way spa retailer’s shop. That’s why a lot of people never think of buying a spa in the first place.

So instead of expecting people to come to them, smart spa retailers are taking their products to the people. That seems to be working. In our research, we found a very strong correlation between dealers who used this technique and who also said that their sales last year experienced an above average increase.

Prospects for the Future

While many in the hot tub segment are pleased with the upward inflection in sales described earlier, the question remains: When – if ever – will the industry return to 300,000+ hot tubs a year? Better yet, can the industry ever achieve the nearly 420,000 units sold in 2004 (a record that still stands)?

The best way to understand what it would take for this industry to get back to its glory days is to look at the overall history of hot tub sales in the U.S. The last time the industry was at its current level was 1993, when 218,000 spas were sold. From there it took seven years to get to 300,000 units and another three – a total of 10 years – to get to 400,000. By the time spa sales reached that lofty perch, the 10-year average annual growth rate was 6.4% – the highest in the previous 25 years. How did that happen?

Thank the economy for much of the updraft. The combination of low unemployment, high consumer confidence, and easy credit all conspired to impel hot tub sales to historic highs. But because of the fallout from the ensuing economic meltdown, we may not see a combination like that again for perhaps another generation.

Fifteen to 20 years ago, nobody worried about “used” hot tubs. It was assumed, incorrectly as it turned out, that most hot tubs were simply discarded when no longer wanted. Our first research into this topic in 2004 demonstrated otherwise. Only about 35% of hot tubs are tossed out, usually because they have reached the end of their useful service life. On the other hand, fully 20% of hot tubs are resold, usually in a private transaction and almost always “as is.” For several years, we tracked those kinds of sales on what we loosely called our “eBay Index.”

Today the face of spa resales has changed; a more formal market has developed. Over the past several years, our surveys of spa retailers have shown that more of them are now selling “remanufactured” hot tubs, i.e., hot tubs that have been acquired by the dealer as trade-ins (or perhaps on the open market) and then refurbished and sold, usually at a considerable discount to comparable new products.

Hot Tub Unit Sales1990 - 2016

Percent Change in Hot Tub Unit Sales1990 - 2016

Why did this happen? The recession apparently had a lot to do with it. Many hot tub dealers, such as pool builders, got caught short when the economy tanked, as our numbers demonstrate. Desperate times call for desperate measures, and more than a few spa dealers discovered that getting into the pre-owned hot tub business not only kept the lights on, but could also be a pretty nice source of income.

This is what we refer to as the formal secondary market – hot tubs bought, reconditioned, and sold by retailers, most of whom also have an established franchise with new spas. Just like car dealers.

Nobody knows exactly how many previously owned hot tubs change hands every year. A very loose approximation would be 100,000 – 200,000. The high end of that estimate is only about 3% of the total installed base. Yet it’s also nearly as many new spas as are being sold today.

That raises an interesting question: Do sales of pre-owned hot tubs cannibalize sales of new hot tubs, and – if so – to what extent? There are two ways to look at that question, sort of like the glass half empty/glass half full challenge.

On one hand, we know from studies of spa shoppers that many put off purchasing a new hot tub because of the cost. Either hot tubs are more expensive than they originally thought, or they were otherwise unsatisfied with the financing that was available. To those people, perhaps the substitution of a comparable “like-new” product for 25% – 40% less has appeal. Rather than postpone the enjoyment of a new spa, they opt for something less expensive.

But there is an upside to the secondary market. For many who have never owned a hot tub, it offers a relatively low cost (thus low risk) way to adopt spa living. Arguably they enter the market at an earlier time than they might otherwise have, owing to income or other circumstances, but once having discovered the satisfaction of owning and enjoying a spa they come back later with full enthusiasm and pockets, to buy a nicer new hot tub. Without the previous experience of a pre-owned spa, they might not have otherwise done so.

We have said all along that sampling is the best way to sell hot tub living. Creating the market for pre-owned hot tubs provides a great opportunity to do just that. It has apparently kept more than a few spa dealers in business, so it can’t be all bad.

Bil Kennedy is president of Pkdata, an Atlanta market research firm that has tracked the pool and spa business since 1992. The firm provides market guidance for the leading manufacturers, builders and retailers of pool and spa products in the U.S. and globally.

In early July, Hearth & Home faxed a survey to 2,500 Specialty retailers of hearth, barbecue and patio products, asking them to compare June 2017 sales to June 2016. The accompanying charts and selected comments are from the 192 useable returns.

Friday, February 9, 2018

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